SIGNIFICANT  STEPS 

in  the 

DEVELOPMENT 

of  the 

TELEPHONE 

An  Address 
hy 

HARRY  B.  THAYER 

June  14,  1925 
before  the 
Vermont  Historical  Society 


lEx  ICtbrtfi 


SEYMOUR  DURST 


When  you  leave,  please  leave  this  hook 

Because  it  has  heen  said 
"Sver'thing  comes  t'  him  who  waits 

Except  a  loaned  book." 


\\  1  r.y  Arc  hitectural  and  Fine  Arts  Library 
Gift  of  Sfymour  B.  Durst  Old  York  Library 


Digitized  by  the  Internet  Archive 
in  2014 


https://archive.org/details/significantstepsOOthay 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  3 


ADDRESS,  SOME  SIGNIFICANT  STEPS  IN  THE 
DEVELOPMENT  OF  A  NATIONAL  SERVICE 

By  Harry  B.  Thayer 

The  first  person  to  hear  the  human  voice  by  telephone  is 
still  living.  The  first  name  to  appear  on  the  payroll  of  any 
organization  givring  telephone  service  is  still  on  our  payroll. 
A  member  of  the  first  Board  of  Directors  of  the  first  telephone 
company  still  sits  on  our  Board.  It  is  still  less  than  half  a 
century  since  the  invention  of  the  telephone  so  that  what  I 
have  to  say  must  be  considered  only  a  part  of  the  first  chapter 
of  the  history  of  telephone  service. 

The  story  of  how  Alexander  Graham  Bell,  a  teacher  of 
deaf  mutes,  a  student  and  teacher  of  the  laws  of  speech,  as 
had  been  his  father  and  grandfather  before  him,  studied  and 
experimented  in  the  belief  that  the  human  voice  could  be 
carried  to  a  distance  by  the  electric  current  over  a  wire,  has 
been  often  told.  The  story  has  all  of  the  thrills  of  a  romance. 
Picture  this  young  teacher  with  a  great  idea  but  with  none  of 
the  financial  resources  necessary  for  experiment;  then,  after 
he  had  succeeded  in  communicating  his  enthusiasm  in  some 
measure  to  the  fathers  of  two  of  his  pupils,  with  financial  help 
from  them,  working  persistently,  sometimes  in  a  cellar, 
sometimes  in  a  shop  attic  and  sometimes  in  his  boarding 
house — often  with  discouragement  and  only  occasionally 
obtaining  results  which  renewed  his  hopes,  but  always  with 
faith  that  the  thing  could  be  done. 

In  June  1875—50  years  ago — he  first  heard  a  sound 
which  had  been  electrically  carried  over  a  wire.  It  was  not 
the  sound  of  the  human  voice  but  it  was  a  sound. 

In  the  following  March,  his  voice  was  carried  over  the 
wire  from  one  room  to  another  in  his  boarding  house  and 
was  heard  by  his  assistant,  Thomas  A.  Watson. 

The  theory  was  demonstrated:  The  invention,  crude 
though  the  apparatus  was,  had  been  made. 


4 


VERMONT  HISTORICAL  SOCIETY 


His  financial  backers  were  Thomas  Sanders  and  Gardi- 
ner G.  Hubbard;  and  Mabel  Hubbard,  at  first  his  pupil,  had 
become  the  rival  in  his  heart  and  mind  of  the  telephone  and 
it  was  her  encouragement  which  led  him  to  go  to  the  Cen- 
tennial Exhibition  in  Philadelphia  where  the  telephone  was  on 
exhibition  (but  had  received  scant  attention),  so  that  he  was 
in  attendance  when  Dom  Pedro,  Emperor  of  Brazil,  who  was 
being  escorted  through  the  exhibition,  in  company  with  some 
distinguished  scientists,  recognized  in  him  the  young  teacher 
of  deaf  mutes  whom  he  had  previously  met  in  his  class-room 
in  Boston  and  listened  at  the  telephone  receiver  while  Bell 
talked  at  the  other  end.  "My  God — it  talks" — the  Em- 
peror exclaimed;  then  Joseph  Henry,  the  venerable  head  of 
the  Smithsonian  Institution  listened.  He  recognized  in 
Bell,  the  young  inventor  who  had  told  him  what  he  was 
trying  to  do  over  a  year  before.  Henry  had  then  en- 
couraged him  to  go  on  with  his  work.  "But  I  have  not  got 
the  electrical  knowledge  that  is  necessary,"  Bell  replied. 
"Get  it"  was  Henry's  answer.  He  was  followed  by  Sir 
William  Thomson,  afterwards  known  as  Lord  Kelvin,  and  at 
that  time  the  foremost  scientist  in  the  world.  "It  does 
speak, "  Sir  William  said.  "It  is  the  most  wonderful  thing  I 
have  seen  in  America."  Bell's  fame  and  the  fame  of  the 
telephone  was  made  and  heralded  over  the  world. 

In  the  following  year  Alexander  Graham  Bell  and  this 
pupil,  Mabel  Hubbard,  who  had  helped  him  with  inspiration 
and  encouragement,  were  married  and  after  forty-five  years 
of  happ;  married  life,  her  death  followed  his  by  less  than 
half  a  year.  That  is  the  romance  of  the  invention  of  the 
telephone. 

The  history  of  the  development  of  nation-wide  telephone 
service  is  the  story,  first,  of  a  small  group  of  men  who  foresaw 
possibilities  and  laid  sound  foundations  for  a  great  public 
service  and  who  devised  and  constructed  its  plan  of  opera- 
tions. These  were  achievements  characterized  by  far  more 
than  ordinary  foresight,  sagacity  and  constructive  ability 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  5 

and  as  such  deserve  and  will  receive  our  principal  attention. 

Professor  Bell  was  a  man  of  vision.  As  early  as  1878, 
when  the  telephone  had  barely  emerged  from  the  laboratory, 
when  speech  by  telephone  was  possible,  but  barely  practic- 
able, he  wrote  this : 

"It  is  conceivable  that  cables  of  telephone  wires 
could  be  laid  underground  or  suspended  overhead, 
communicating  by  branch  wires  with  private 
dwellings,  country  houses,  shops,  manufactories, 
etc.,  etc. — uniting  them  through  the  main  cable 
with  a  central  office  where  the  wire  could  be 
connected  as  desired,  establishing  direct 
communication  between  any  two  places  in  the 
city.  Such  a  plan  as  this,  though  impracticable 
at  the  present  moment,  will,  I  firmly  believe, 
be  the  outcome  of  the  introduction  of  the  telephone 
to  the  public.  Not  only  so,  but  I  believe  in  the  future 
wires  will  unite  the  head  offices  in  different  cities 
and  a  man  in  one  part  of  the  country  may  commun- 
icate by  word  of  mouth  with  another  in  a  distant 
part. 

"Believing,  as  I  do,  that  such  a  scheme  will  be  the 
ultimate  result  of  the  telephone  to  the  public,  I 
will  impress  upon  you  all  the  advisability  of  keeping 
this  end  in  view,  that  all  present  arrangements 
of  the  telephone  may  be  eventually  realized  in  this 
grand  system. " 

The  original  patent  on  the  telephone  was  owned  in  part- 
nership by  Thomas  Sanders,  Gardiner  Hubbard  and  Pro- 
fessor Bell,  Sanders  and  Hubbard  being  the  financiers  and 
business  managers.  They  also  were  men  of  vision  thoroughly 
imbued  with  the  plan  of  building  up  a  national  service.  I 
have  often  wondered  whether  they  would  not  have  received 
greater  material  reward  for  their  efforts  if  they  had  been 
content  to  manufacture  and  sell  telephones  and  leave  to  some 


6 


VERMONT  HISTORICAL  SOCIETY 


one  else  the  future  of  telephone  service,  but  judging  from  their 
correspondence,  that  thought  did  not  enter  their  minds. 
With  great  personal  sacrifice  they  put  money  into  the 
business  but  there  is  no  suggestion  in  their  correspondence 
that  they  thought  of  taking  any  out.  Apparently  their 
whole  purpose  was  to  build  up  a  business  to  give  telephone 
service.  Probably  they  were  not  entirely  altruistic  but  were 
disposed  to  build  and  wait. 

A  real  discoverer  or  a  real  inventor  usually  starts  up  a 
flock  of  claimants  and  pretenders,  ranging  from  those  who 
have  almost  accomplished  the  result,  to  those  who  on  no  real 
foundation  of  fact,  fabricate  a  case  for  the  purpose  of  robbing 
the  rightful  winner  of  his  reward.  Professor  Bell's  experience 
was  no  exception.  The  announcement  of  his  invention  was 
followed  by  claims  involving  the  greatest  patent  litigation 
up  to  that  time,  lasting  about  twenty  years;  that  is,  through 
the  whole  seventeen  years'  life  of  the  original  patent  and  three 
years  after  it  had  expired.  Some  of  these  claims  were  taken 
up  by  the  Western  Union  Telegraph  Company,  and  for  the 
first  two  or  three  years,  the  infant  industry  found  itself  in 
competition  with  one  of  the  most  powerful  corporations  of 
that  time.  The  effect  of  this  during  the  first  two  or  three 
years  was  largely  increased  difficulty  in  inducing  men  to  put 
their  time  and  money  into  the  promotion  of  an  entirely  new 
enterprise.  Both  Mr.  Hubbard  and  Mr.  Saunders  had  other 
interests  and  other  work,  and  they  put  into  the  business 
more  money  than  they  could  really  spare.  They  formed  a 
corporation,  but  had  difficulty  in  distributing  the  stock. 
They  needed  a  business  organization,  but  did  not  have  the 
money  to  support  it,  but  they  needed  most  some  one  of  force 
and  ability  to  take  the  business  management  of  the  enterprise. 

Mr.  Hubbard,  as  a  member  of  a  Congressional  Com- 
mission on  Postal  Affairs,  had  met  Mr.  Theodore  N.  Vail, 
who  was  then  Superintendent  of  the  Railway  Mail  Service 
and  had  become  impressed  with  his  ability,  and  he  and 
Mr.  Sanders  rather  reluctantly  came  to  the  conclusion  that 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  7 

they  could  pay  him  $3,000  a  year  salary,  although  Mr. 
Sanders  impressed  it  upon  Mr.  Vail  that  he  did  not  personally 
guarantee  its  payment.  The  enterprise  was  having  what  we 
in  Vermont  call  "pretty  hard  sledding." 

At  about  this  time  (in  1878)  William  H.  Forbes  of  Boston 
became  financially  interested  in  the  enterprise.  Colonel 
Forbes  was  one  of  the  old  Boston  merchant  families — owning 
its  own  ships  and  trading  with  China  and  the  Far  East. 
Perhaps  he  inherited  a  spirit  of  adventure  which  moved  him 
to  embark  in  this  enterprise.  It  needed  such  a  spirit.  The 
Company  was  poverty  stricken  and  the  resources  of  the 
Western  Union  Telegraph  Company  were  concentrated 
against  it. 

These  two  men,  Forbes  and  Vail,  brought  to  the  strug- 
gling business  what  was  needed  to  put  it  on  a  firm  foun- 
dation,— business  sagacity,  generalship  and  the  confidence  of 
financiers. 

They  settled  the  contentions  with  the  Western  Union 
Telegraph  Company  and  soon  the  public  began  to  realize 
the  possibilities  in  what  had  previously  had  little  more  than 
the  attraction  of  a  novelty.  Their  Company,  the  National 
Bell  Telephone  Company,  had  issued  capital  to  the  amount 
of  $850,000.  Within  the  year,  from  November  1878  to 
October  1879,  the  market  price  of  the  shares  went  from 
about  $50.  to  $800.  per  share.  That  was  the  period  in  which 
the  tradition  that  there  was  an  enormous  profit  in  the  tele- 
phone business  took  root. 

In  the  spring  of  1880,  the  American  Bell  Telephone 
Company  was  organized  under  a  special  Act  of  the  Massa- 
chusetts Legislature  and  it  is  significant  that  one  of  the 
prominent  features  of  the  charter  was  the  right  to  hold  stock 
in  other  companies.  Significant  because,  as  I  shall  attempt 
to  show,  stock  ownership  in  subsidiary  companies  was  one  of 
the  essential  parts  of  the  plan  in  their  minds  for  the  develop- 
ment and  operation  of  a  nation-wide  telephone  service. 

Mr.  Forbes  became  President  and  Mr.  Vail,  General 


cS 


VERMONT  HISTORICAL  SOCIETY 


Manager,  of  the  new  corporation.  At  that  time  there  were 
less  than  30,000  telephones  in  service  in  the  United  States, 
and  they  were  in  138  cities  and  towns,  unconnected  with  each 
other  by  telephone  lines.  In  Mr.  Forbes'  first  report,  with 
reference  to  this  period,  he  said: 

"After  two  years  passed  in  a  struggle  for  existence 
and  a  third  largely  devoted  to  the  settlement  of  dis- 
putes inherited  from  the  contest,  the  owners  of  the 
telephone  patents,  at  the  beginning  of  their  fourth 
year,  for  the  first  time  find  themselves  free  from  all 
serious  complications,  with  nothing  to  prevent  the 
Company  from  directing  its  whole  working  force  to 
the  development  of  the  business,  and  with  a  defined 
policy  for  its  future  operations." 

There  was  a  defined  policy.  During  the  following  five 
years,  the  fabric  of  corporations  and  contracts  defining  their 
relations,  departments  and  all  that  went  toward  making  a 
working  system  to  carry  out  that  policy,  was  constructed. 
The  policy  was  to  carry  out  the  dream  of  Professor  Bell — to 
construct  and  operate  a  nation-wide  telephone  service,  so 
that  within  the  boundaries  of  this  country,  all  that  is  possible 
in  telephone  service  should  be  possible  to  all. 

The  system  as  then  constructed  is  substantially  as  now 
operated;  a  parent  or  headquarters  company,  sectional 
operating  companies,  a  manufacturing  organization  and  an 
organization  to  furnish  service  connecting  telephone  users  in 
different  operating  districts — the  system  which  we  call  the 
Bell  Telephone  System.  How  much  of  this  constructive 
planning  was  the  work  of  Forbes  and  how  much  of  Vail,  I 
cannot  tell.  I  doubt  whether  they  could  have  told,  because 
they  worked  in  such  co-operation  that  much  of  it  was  un- 
doubtedly joint  work.  They  planned  as  though  they  were 
standing  on  the  threshold  of  the  future  and  could  see  then 
what  would  be  needed  now  and  in  our  future,  for  this  National 
Service,  and  what  must  be  provided  and  what  must  be 
guarded  against  to  insure  it. 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  9 

Their  plan  provided  district  operation  companies  in 
touch  with  the  growth  and  the  requirements  of  the  com- 
munities they  served,  with  stock  ownership  by  the  parent 
company  in  order  to  insure  uniform  policies  and  uniform 
standards  of  service.  At  first  there  were  many  of  these 
operating  organizations  but  as  economy  of  operation  has 
dictated,  they  have  been  consolidated  into  fifteen  operating 
organizations  covering  in  their  operations  the  whole  country. 

They  recognized  the  importance  of  a  uniform  standard 
of  excellence  in  the  apparatus  to  be  used  in  transmitting  and 
receiving  the  voice  current,  and  retained  in  the  parent  com- 
pany the  obligation  to  furnish  to  all  of  the  operating  com- 
panies the  transmitter  and  the  receiver. 

They  realized  that  in  addition  to  the  transmitter  and 
receiver  an  almost  endless  variety  of  other  apparatus  must  be 
provided,  and  their  costly  experience  in  patent  litigation 
warned  them  that  the  operating  companies  must  be  spared 
a  similar  experience. 

They  foresaw  that  they  must  have  a  free  field  of  develop- 
ment, unhampered  by  patents  controlled  outside  of  the 
system. 

Furthermore,  they  realized  the  desirability,  on  the 
grounds  of  economy  and  efficiency,  of  standardization  of 
material. 

They,  therefore,  organized  in  January  1882,  a  manu- 
facturing corporation,  in  which  the  parent  company  was  a 
large  stockholder,  under  obligation  to  provide  whatever  de- 
vices might  be  required  by  the  operating  companies  at 
reasonable  prices.  This  involved  an  obligation  on  the 
manufacturing  corporation  to  acquire  licenses  under  the 
patents  of  others,  if  necessary. 

But,  in  order  that  this  relationship  should  always  be  an 
advantage  which  the  operating  companies  could  use,  and 
never  a  burden  that  they  must  carry,  they  left  the  operating 
companies  free  from  any  obligation  to  buy  of  their  manu- 
facturing company.    This  studious  care  to  protect  the  opera- 


10 


VERMONT  HISTORICAL  SOCIETY 


ting  companies  in  untrammelled  development — to  help  and 
not  to  hinder — is  characteristic  of  the  whole  plan. 

It  was  planned  and  always  has  been  the  part  of  the 
parent  company  to  perform  for  the  whole  system  the  func- 
tions of  a  general  staff  of  the  System.  It  has  employed 
scientific  investigators  and  maintained  laboratories  and  ex- 
perimental shops  where  the  aim  is  to  develop  the  most 
economical  and  efficient  apparatus  and  construction  and 
maintenance  material,  looking  as  far  as  possible  into  the 
future  requirements  of  the  public.  All  of  the  methods  of 
work  in  the  various  departments  of  work  are  studied  and 
standardized.  It  has  co-ordinated  the  financing  of  the 
system  and  in  general  has  done  all  of  the  things  which  could 
be  done  more  efficiently  by  one  agency  for  all  of  the  com- 
panies, than  by  each  for  itself. 

By  1885,  the  operating  companies  had  made  such  de- 
velopment that  it  seemed  possible  to  extend  the  range  of  con- 
versations, and  the  American  Telephone  and  Telegraph 
Company,  entirely  owned  by  the  parent  company,  was 
organized  to  inter-connect  the  telephone  users  in  the  dis- 
tricts of  the  operating  companies.  When  that  was  done, 
the  plan  for  a  national  service,  developed  before  1882  and 
provided  for  in  inter-company  contracts,  came  into  com- 
plete operation. 

Counting  from  the  invention  of  the  telephone,  the  end  of 
five  years  saw  the  plan  completed,  which  has  been  followed, 
practically  without  change,  in  establishing  the  nation-wide 
telephone  service  as  it  exists  today.  The  vision  and  the 
wisdom  of  the  founders  of  the  business,  as  exhibited  in  the 
work  of  that  period,  makes  it  stand  out  as  the  most  note- 
worthy in  the  history  of  the  telephone.  The  history  of  the 
telephone  has  been  the  fruition  of  the  plans  made  then. 
What  they  did  was  to  create  an  organization  which  was  tri- 
butary to  no  outside  interest,  which  had  within  itself  the 
elements  of  progress  and  which  depended  upon  nothing  but 
itself  and  the  good- will  of  the  American  Public.    That  is 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  11 

what  they  did,  and  the  evidence  is  strong  that  that  is  what 
they  tried  to  do. 

That  they  realized  their  dependence  upon  the  Public's 
good-will  is  evidenced  by  a  letter  from  the  General  Manager, 
Mr.  Vail,  to  at  least  one  of  the  operating  companies  written 
in  1883.    Note  the  significance  of  the  questions  he  asks: 
"Is  the  telephone  service,  as  it  is  now  being  fur- 
nished, satisfactory  to  the  public? "    "Are  the  prices 
satisfactory  to  the  public,  considering  the  facilities 
and  service  that  is  given?"    "Is  it  possible,  in  view 
of  the  contingencies  of  storm,  underground  legisla- 
tion, etc.,  to  make  any  lower  rate  to  the  public  for 
same  classes  of  service?  "   "  What  has  been  the  tend- 
ency of  the  relationship  between  the  public  and  the 
local  companies  for  the  past  year,  i.  e.,  are  the  re- 
lations between  the  public  and  the  companies  im- 
proving?" 

Such  solicitude  as  to  quality  of  service,  prices  and  public 
relations,  unfortunately,  was  not  as  general  among  public 
utility  corporations  at  that  time  as  it  is  coining  to  be  now. 

So  the  founders  of  the  service  left  to  their  successors 
not  only  a  complete  operating  organization  which  has  sur- 
vived, but  they  left  in  the  organization  the  right  spirit  of 
public  service.  Leaving  this  constructive  period,  I  shall  lay 
stress  only  upon  such  events  as  had  an  important  influence 
upon  the  final  result. 

It  must  be  remembered  that  in  the  early  eighties,  not 
only  was  the  art  of  telephony  new,  but  that  was  true  of  all  of 
the  applications  of  electricity  to  the  service  of  mankind, 
except  the  telegraph,  and  those  years  were  marked  by  the 
development  of  apparatus  and  materials,  methods  and  men, 
and  a  healthy  expansion  of  the  business,  hampered  somewhat 
by  the  constant  patent  litigation. 

In  the  annual  report  for  1892,  the  President  says: 
"It  is  now  possible  from  this  room  (in  Boston)  or 

from  any  properly  appointed  station  on  this  system, 


12 


VERMONT  HISTORICAL  SOCIETY 


to  talk  north  and  east  to  Augusta,  north  to  Concord, 
N.  H.,  to  Buffalo,  New  York,  west  to  Chicago  and 
south  to  Washington,  and,  of  course,  to  the  principal 
cities  intermediate. "  "It  may  be  interesting  to  note 
that  within  that  territory  live  and  do  business,  some- 
thing more  than  one  half  of  the  whole  population  of 
the  United  States. "  "That  this  constitutes  an  ad- 
dition to  the  social  and  business  facilities  of  the 
country  of  far  reaching  consequence,  needs,  of 
course,  not  to  be  added." 

At  that  time,  after  about  fifteen  years  growth,  there 
were  about  230,000  telephone  stations  in  the  United  States 
(about  as  many  as  the  present  growth  of  three  or  four 
months) . 

In  1893  the  original  Bell  patent  expired,  although  the 
litigation  over  it  still  continued. 

The  Company  owned  or  controlled  many  other  patents 
convering  important  improvements  in  the  telephone  or  sub- 
sidiary apparatus,  but  never  again  made  any  serious  attempts 
to  enforce  patent  protection. 

Patent  protection  had  served  its  purpose  by  furnishing 
the  measure  of  control  or  influence  necessary  to  direct  the 
introduction  of  the  telephone  in  accordance  with  the  purpose 
of  a  national  service  by  a  closely  knit  organization. 

It  should  be  borne  in  mind  that  the  purpose  of  the  major 
part  of  this  litigation  was  not  to  determine  whether  or  not 
there  should  be  a  patent  monopoly  of  the  telephone,  but 
whether  it  should  rest  with  the  Bell  Group,  or  go  to  some 
other  group. 

As  the  necessity  of  protecting  its  patent  situation  be- 
came less  important,  it  was  able  to,  and  did,  liberalize  some  of 
its  methods.  It  began  to  permit  connection  between  its 
licensed  companies  and  other  companies  without  raising  the 
question  as  to  whether  or  not  they  infringed  its  patents. 

That  was  the  beginning  of  the  connecting  company  as 
distinguished  from  the  so-called  competing  company. 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  13 

The  Company  was  prosperous  and  the  business  profit- 
able, but  not  extravagantly  so.  There  was  a  popular  opinion 
that  it  was  something  like  a  gold  mine.  I  remember  at  times 
meeting  men  who  claimed  to  have  had  the  opportunity  in 
the  beginning  to  buy  the  Bell  patent  for  trivial  sums,  and 
who  were  fond  of  calculating  the  millions  they  lost  by  not 
taking  advantage  of  the  opportunity.  It  was  frequently 
stated  that  the  patent  was  the  most  valuable  one  ever  issued. 

The  fact  is,  so  far  as  I  have  been  able  to  find,  that  no 
one  ever  had  the  opportunity  to  buy  the  Bell  patent  from  the 
original  owners,  and  while  I  think  it  was  the  most  valuable 
one  ever  issued,  the  value  was  principally  to  the  public. 
The  profits  in  excess  of  moderate  dividends  were  left  in  the 
business.  No  large  fortunes  were  made  out  of  it  even  by 
the  pioneers.  But  this  popular  opinion  that  it  was  a  very 
profitable  business  led  people  all  over  the  country  to  es- 
tablish co-called  competing  companies  after  the  expiration 
of  the  original  patent.  Before  long  there  was  hardly  a  com- 
munity in  the  country  which  was  not  served  by  two  com- 
panies, each  having  a  separate  list  of  patrons  and  a  few  in 
common. 

Perhaps  this  competitive  movement  was  fostered  to  some 
extent  by  the  general  public  feeling  of  revolt  against  large 
corporations  which  was  at  its  height  during  this  period. 
There  was  the  feeling  that  with  size  went  power  and  that 
there  could  not  be  power  without  abuse  of  power.  This 
feeling  manifested  itself  in  onerous  restrictions  which  were 
placed  upon  this  Company  by  the  legislature  with  reference 
to  increases  in  its  capital,  so  that  at  the  same  time  it  stimu- 
lated public  favor  in  the  small  corporation  and  hampered 
the  operations  of  the  large  corporation. 

In  1900  it  became  necessary  to  change  the  legal  domicile 
of  the  parent  company,  which  could  be  more  properly  called 
the  headquarters  company,  and  it  was  accomplished  by 
transfer  of  t lie  property  to  its  subsidiary,  the  American 
Telephone  and  Telegraph  Company,  a  New  York  corporation, 


14 


VERMONT  HISTORICAL  SOCIETY 


and  the  exchange  of  the  shares  of  that  company  for  its  own 
shares.  As  a  part  of  this  legal  reorganization,  a  part  of  the 
surplus  which  had  accumulated  in  the  preceding  twenty-five 
years  through  undivided  profits  and  the  receipt  of  premiums 
on  stock  issues  was  capitalized,  with  a  proportional  ad- 
justment in  the  dividend  rate.  The  ownership  and  operation 
of  the  Long  Distance  Lines,  which  had  been  in  a  separate 
corporation,  thereby  came  into  the  parent  organization. 
Otherwise  it  was  virtually  a  change  in  name  and  in  legal 
residence  of  the  corporation  with  no  change  in  management 
or  policies  or  methods.  The  release  of  restrictions  on  the 
issue  of  new  capital,  however,  made  possible  extensions  which 
otherwise  would  have  been  impossible  and  at  this  time  began 
the  great  growth  in  telephone  service. 

The  telephone  companies  not  licensed  by,  or  operating 
as  a  part  of  the  Bell  organization,  were  called  competing  or 
independent  companies,  and  between  1900  and  1905  they 
reached  the  summit  of  their  strength.  There  are  not  ac- 
curate figures  as  to  the  number  of  stations  they  operated,  but 
I  have  the  impression  that  it  did  not  at  its  height  differ 
widely  from  the  number  operated  by  the  Bell  organization. 

They  did  not  have  a  central  organization  and  a  cen- 
tralized financial  strength.  They  did  not  have  a  complete 
scheme  of  inter-connection  between  communities  and  in 
many  cases  they  were  not  soundly  financed. 

The  principle  of  two  agencies  rendering  telephone  ser- 
vice in  the  same  community  or  communities  is  economically 
unsound  and  could  not  survive.  It  has,  however,  taken  a 
long  time  for  the  public  to  fully  realize  that  this  so-called 
competition  is  not  real  competition ;  that  the  public  does  not 
have  the  choice  between  two  complete  services  but  it  either 
pays  to  one  company  for  a  partial  service  or  to  both  com- 
panies in  order  to  get  a  complete  service  in  the  community 
served.  It  is  now  rapidly  disappearing.  In  some  cases 
the  Bell  plant  has  been  sold  to  the  independents,  and  in  some 
cases  the  independent  plant  has  been  sold  to  the  Bell  com- 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  15 

panies  and  in  all  of  those  cases  the  surviving  company's  plant 
has  been  connected  with  the  Bell  National  System  and  so 
the  ideal  of  a  nation-wide  service  has  been  maintained. 

By  the  time  of  the  entry  of  this  country  into  the  Great 
war,  the  Bell  Telephone  System  had  become  really  the 
National  Telephone  System.  Its  wires  reached  from  coast 
to  coast  and  from  Canada  to  the  Gulf.  It  had  the  only 
laboratories  equipped  to  design  telephone  apparatus  for 
military  purposes — the  only  manufacturing  plants  capable  of 
producing  it  in  adequate  quantities,  and  the  only  large  body 
of  employees  trained  to  do  certain  necessary  kinds  of  ser- 
vice, and  all  of  these  facilities  were  promptly  made  available 
to  Government  use.  Camps  and  cantonments  and  all  of  the 
various  activities  of  the  Army  and  Navy  were  promptly 
equipped  and  connected.  Units  were  organized  for  service 
abroad  in  the  various  departments  of  telephone  work. 
Special  apparatus  was  designed  and  supplied.  Both  the 
intentions  and  performance  of  the  Bell  organizations  re- 
ceived the  hearty  approval  of  the  military  authorities. 

It  came,  therefore,  as  a  surprise  and  somewhat  of  a 
shock  when,  under  authority  of  Congress,  the  Federal  Au- 
thority took  over  the  operation  of  the  telephone  service.  It 
did  not  appear  to  be  justified  and  did  not  appear  to  result  in 
any  advantage. 

It  necessarily  meant  Government  approval  of  rate 
changes  and  wage  changes  during  a  period  when  prompt 
action  was  vital  to  maintenance  of  good  service.  Govern- 
ments do  not  act  promptly  and  to  that  extent  the  service 
suffered.  After  the  armistice  the  operation  of  the  properties 
was  returned  to  their  owners.  The  unanimity  of  the  action 
possible  in  the  Bell  organization  made  all  of  the  details  of 
the  transaction  comparatively  simple,  and  within  six  months 
of  the  return  of  the  property  to  the  companies,  the  whole 
transaction  was  closed. 

The  restrictions  on  the  use  of  capital  and  material  during 
the  war,  loss  of  morale  and  of  skilled  people  due  to  slow  wage 


16 


VERMONT  HISTORICAL  SOCIETY 


adjustments  during  the  period  of  Federal  Control,  all  had 
their  effects  on  the  service  to  the  Public  after  the  war,  and 
from  those  effects  the  service  has  only  recently  completely 
recovered. 

A  history  of  the  commercial  development  of  the  tele- 
phone in  this  country  becomes  in  the  main  a  history  of  the 
Bell  Telephone  System.  It  is  very  rare  that  those  engaged  in 
the  management  of  an  enterprise  can  look  back  after  the 
lapse  of  half  a  century  and  find  that  its  progress  during  that 
period  has  been  in  accordance  with  a  preconceived  pro- 
gramme, and  that  no  fundamental  mistakes  were  made  in  the 
conception  of  its  future  or  in  the  preparation  for  its  future. 
We  can  even  go  beyond  that  and  say  that  we  cannot  see  any 
other  way  in  which  a  nation-wide  service  can  be  efficiently 
and  economically  operated. 

Foresight  has  been  characteristic  of  the  management  and 
in  other  ways  than  I  have  attempted  to  describe.  The  story 
of  the  work  of  the  scientists  and  inventors  employed  in  the 
Bell  System  preparing  for  the  growth  of  telephone  service  and 
its  extension  into  new  fields  makes  a  wonderful  record.  I 
have  already  called  your  attention  to  the  early  appreciation 
of  the  fact  that  approval  by  the  Public  of  the  policies  and 
practices  was  essential  to  the  continued  success  of  the  en- 
terprise. The  American  Telephone  and  Telegraph  Company 
was  at  least  among  the  first  of  the  great  corporations  to  give 
full  publicity  to  its  aims  and  its  operations. 

The  financial  management  has  been  sound  and  conser- 
vative. The  stockholders,  through  premiums  and  conversion 
of  bonds,  have  paid  into  the  treasury  over  $40,000,000  more 
than  the  capital  of  the  company.  Reasonable  dividends  have 
been  paid.  If  figured  not  upon  the  issued  capital  but  upon 
what  the  stockholders  have  paid  into  the  Company,  plus 
their  earnings  undistributed,  the  rate  in  1924  was  7.3%.  It 
has  not  exceeded  7.5%  in  the  past  thirty  years  and  has  ex- 
ceeded it  only  for  two  years  in  the  past  forty  years.  It  has 
not  been  at  the  rate  of  less  than  6%  in  twenty  years  and 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  17 

only  for  two  years  in  the  past  forty  years.  The  aim  has  been 
that  the  stock  should  be  an  investment  and  not  a  speculation. 

Fair  and  considerate  treatment  of  those  giving  their 
services  to  the  enterprise  has  been  a  cardinal  principle.  In 
1913  there  was  inaugurated  throughout  the  Bell  Telephone 
System  what  is  called  the  Benefit  Fund,  providing  payments 
to  employees  during  sickness  and  in  old  age.  In  1915  plans 
were  put  in  operation  encouraging  employees  to  invest  in 
stock  and  securities  of  the  Bell  System  and  other  plans  for 
the  encouragement  of  thrift  are  in  operation.  A  separate 
department — well  organized  and  equipped — is  devoted  to 
the  study  and  inauguration  of  plans  for  improvement  of 
working  conditions,  and  in  working  conditions  is  included 
something  more  than  physical  conditions.  The  effort  is 
made  to  give  all  of  those  employed  in  giving  telephone  service 
that  knowledge  of  the  aims  and  purposes  of  the  organization, 
and  of  the  results  of  operation  which  will  give  them  an  in- 
terest in  their  work,  and  a  share  in  the  joys  of  accomplish- 
ment. I  have  only  touched  upon  the  later  and  incidental 
developments  because  I  want  to  leave  in  your  minds  the 
picture  of  the  work  of  the  founders  of  the  service  in  develop- 
ing a  plan  which,  after  a  half -century's  use,  must  be  admitted 
to  be  the  best  plan  for  conducting  a  nation-wide  service. 

Now  let  us  see  what  in  less  than  half  a  century  has  come 
to  this  country  out  of  the  dreams  of  Bell  and  Sanders  and 
Hubbard  and  the  plans  of  Vail  and  Forbes. 

The  Bell  Telephone  System  with  its  investment  of  be- 
tween two  and  a  half  and  three  billions  of  dollars,  contri- 
buted directly  by  360,000  stockholders,  and  unknown 
thousands  of  holders  of  other  securities,  and  indirectly 
through  savings  banks  and  insurance  companies,  and  other 
similar  institutions,  by  perhaps  millions  more,  giving  em- 
ployment directly  to  about  300,000  people,  and  indirectly 
to  thousands  more. 

With  sixteen  millions  of  stations  in  the  cities,  towns  and 
villages  and  on  the  farms  all  over  the  country  connected  to- 


18 


VERMONT  HISTORICAL  SOCIETY 


gether  in  one  great  net-work  for  intercommunication,  and 
used  to  the  extent  of  over  sixty  million  conversations  a  day, 
some  of  them  between  points  thousands  of  miles  apart.  And 
the  end  is  not  yet. 

Aside  from  the  probability  that  there  are  more  Ver- 
monters  financially  interested  in  this  than  in  any  other  single 
business  enterprise  and  more  Vermont  communities  using 
this  than  other  public  utility,  there  is  another  reason  why 
the  development  of  the  Bell  Telephone  System  should  have  a 
particular  and  personal  interest  to  Vermonters. 

It  is  a  monument  to  the  foresight  and  constructive  genius 
of  Theodore  N.  Vail,  and  Mr.  Vail  was  a  Vermonter.  A 
Vermonter  by  adoption,  it  is  true,  but  as  he  often  said,  the 
glory  of  being  a  Vermonter  was  greater  to  him  who  gained  it 
by  deliberate  choice  than  to  him  to  whom  it  came  as  an 
accident  by  birth.  He  maintained  a  residence  here  during 
the  greater  part  of  his  business  life.  It  was  the  home  to 
which  he  turned  for  rest  and  mental  refreshment.  He  was 
truly  a  great  man — one  of  the  giants  of  his  generation — 
and  he  loved  Vermont. 

The  head  of  the  operating  company  which  is  responsible 
for  giving  telephone  service  to  New  Hampshire,  Maine, 
Massachusetts,  Rhode  Island,  as  well  as  Vermont,  is  Matt  B. 
Jones,  from  Waitsfield. 

The  head  of  the  great  manufacturing  organization  which 
is  a  part  of  the  Bell  Telephone  System,  and  which  supplies 
telephone  apparatus  not  only  to  this  country  but  to  most 
of  the  other  countries  of  the  earth,  with  annual  sales  to  the 
amount  of  approximately  $350,000,000  and  65,000  employ- 
ees, is  Charles  G.  DuBois  of  Randolph. 

There  is  a  Vice  President  of  the  American  Telephone  and 
Telegraph  Company,  Edward  K.  Hall,  the  son  of  a  Vermont 
schoolmaster,  and  a  Vermont  school-boy  himself,  who  has 
done,  and  is  doing  more  than  any  other  man  I  know  in  the 
Bell  Telephone  System  and  out  of  it,  to  give  to  the  working 


STEPS  IN  THE  DEVELOPMENT  OF  A  NATIONAL  SERVICE  19 

man  and  the  working  woman  joy  in  working  and  pride  in 
working  well. 

And  there  are  many  others  doing  their  work  in  this  ser- 
vice as  they  find  it  to  do,  and  doing  it  with  the  spirit  of  fidelity 
to  Vermont  traditions  which  has  made  the  sons  of  Vermont 
successful  in  their  fields  of  labor  wherever  they  have  gone. 


